On Jun 17, 2013, shares of UnitedHealth Group Inc. (UNH) hit a 52-week high of $65.24. The momentum was driven by recent hike in dividend as well as new share repurchase announcement.
Shares of the company gained 20.6% year to date as of the close of trading on Monday.
UnitedHealth recently announced that its Board of Directors has authorized a substantial hike of 32% in its quarterly dividend to 28 cents per share. The company’s board also approved the repurchase of 110 million shares, which is about 10% of UnitedHealth’s outstanding shares. These actions reflect the company’s strong balance sheet position with a moderate leverage and ability to generate significant cash flow.
We are also optimistic regarding the company’s long-term growth prospects. It has strengthened its key capabilities to respond to the emerging growth opportunities. These initiatives have been taken to expand its Medicaid and Medicare business, grow the health service business and expand the international operations.
UnitedHealth has also been aggressively expanding its overseas business, which will provide the company geographical diversification benefits. With increased regulations from the Health Care Law at home the company is looking for business from international venues.
UnitedHealth has been successfully growing its membership. With the implementation of TRICARE Contract, it added 2.9 million military market beneficiaries.
Valuation for UnitedHealth looks reasonable. The shares are trading at a discount to the peer group average both on a forward price-to-earnings basis and on a price-to-book basis with return on equity lower than the peer group average. The year-to-date return from the stock came in at 18.7%, above the S&P’s return of 14.9%.
Other Stocks to Consider
Apart from UnitedHealth, other stocks in the industry that are currently performing well include Aetna Inc. (AET) with Zacks Rank #1 (Strong Buy), Health Net Inc. (HNT) and WellPoint Inc. (WLP) both with Zacks Rank #2 (Buy).